To get over sticker shock, new payment models are needed for gene therapies

The first gene therapies could hit the US market next year, but with their arrival comes a painstaking conundrum: how to pay for single-dose medicines that promise a quick cure, but have sky-high price tags.

Consider a drug called Glybera. While approved in Europe to treat an ultrarare enzyme disorder, its $1 million cost precluded coverage in most European countries. The manufacturer subsequently ended plans to win regulatory approval in the United States and sold off its European marketing rights.

This is a cautionary tale. European countries have very different systems for paying for medicines, but the increasingly high cost of many prescription drugs is already straining health care budgets across the United States.

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Take the recent batch of hepatitis C treatments. These drugs are capable of curing an intractable disease and saving untold dollars in the long run by helping patients to avoid liver transplants, cancer, and hospital stays. But the high, upfront costs have led to rationing by many budget-strapped states.

Gene therapies will pose a similar problem. These treatments transplant normal genes into cells, replacing missing or defective ones to correct genetic disorders. The therapies are designed to be administered just once, so drug companies are expected to charge a lot more than they do for a bottle of pills patients take every day.

Some of their ideas may be difficult to achieve, but they are certainly timely, since the first gene therapies could appear in the United States as soon as 2017.

Spark Therapeutics, a spinoff of the Children’s Hospital of Philadelphia, expects to seek regulatory approval this year for a therapy to combat an inherited eye disease. And GlaxoSmithKline, which on Friday won European approval for its Strimvelis gene fix for a rare immune disorder, could follow suit next year with its US marketing application.

One suggestion is for companies to issue the equivalent of a manufacturer’s warranty. If a pricey therapy eventually stops working, the drug maker could issue a refund or pay for additional rounds of treatment. Or, insurers might negotiate to pay in installments so long as the drug stays effective.

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“It’s really an attempt to push quality and for companies to stand by their products,” said Dr. Stuart Orkin, a pediatric oncologist at the Dana-Farber Cancer Institute and Boston Children’s Hospital. The point, he added, is to cap drug costs.

Orkin coauthored the Science essay with Dr. Philip Reilly of Third Rock Ventures, a biotech investor that has helped launch gene therapy companies.

Whether their proposal will gain traction is unclear. A drug maker could respond by deciding to charge an even higher price in order to speed the return on investment.

But if fair prices are set, an installment plan could successfully help spread out the costs for such expensive medicines, at least in principle.

“The notion of paying over time for a cure makes sense,” said John Crowley, chief executive at Amicus Therapeutics, a New Jersey-based company developing several rare disease drugs that’s exploring gene therapies. “But I also think that if you develop a therapy that really does cure somebody, the system will figure out how to pay for it.”

The other trial balloon being floated by Orkin and Reilly is to redirect tax breaks.

Under the Orphan Drug Act, a company is awarded tax credits for developing treatments for a rare disease that affects fewer than 200,000 people. Orkin and Reilly suggest that companies essentially take some of those dollars and use them to reduce the cost of their medicine.

This is a provocative notion that is likely to meet stiff resistance from the pharmaceutical industry, which cherishes these sorts of incentives for drug development. And implementing it would require Congress to change the law.

Joel Hay, a professor of health economics and policy at the University of Southern California, doesn’t expect that to happen anytime soon.

“The whole point of the Orphan Drug Act is to make more drugs available,” he said. “I think if you diminish those benefits, companies will be less likely to develop drugs for those conditions.”

He may be right. It will take imagination and compromise to find the necessary balance rewarding innovation and ensuring society can benefit. No one is calling 9-1-1 just yet, but it’s also true that, unless there is a clear path to make gene therapies economically feasible, then everyone loses.

”After all if no one can pay for a therapy what good is the cure”
This is a great scientific breakthrough but the producers have to look for a way of really bringing down the cost. I have two victims and I need them treated.

Here is how to pay for a $1,000,000 drug over a lifetime; you amortize the cost over a 30 year period, likes mortgage. For example, if the patient or insurance company puts down 10% ($100,000) and pays the $900,000 balance over 30 years at 5% interest the monthly payments would be $4831, or $57,972 annually. After 360 months the total payment with interest would be $1,739,300, manageable for the insurance company and a decent profit for the company.

@John Branch. If he patient has a life insurance policy that allows creditors to be paid out of the death benefit that is one way for the company to come after their money. More likely the cost of the therapy itself may come close to bankrupting the patient after four years so there would be no estate to go after and the drug company in such situation would write off the unpaid debt on the corporate balance sheet.

It would be good to know what the basic manufacturing cost of these drugs is after setting aside payback for development, especially drugs that don’t really need to be marketed — like a hepatitis C treatment. Is the true cost of a $64,000 course of treatment some shockingly low number, like maybe $100? In other words, what level of avarice are we dealing with?

I found your article very provocative and it stimulated me to think about the therapeutic advances that are anticipated in the future and how they will be paid for.
One of the challenges in our current system is the reluctance for Insurance companies to pay for an expensive cure when the patient may not be covered by that payer next month or next year. Admittedly, it makes pharmacoeconomic sense especially if the cure is for a chronic disease that will require care, treatment and hospitalization over the life of the patient.

I would suggest that universal health care with a single payer system would remove this barrier. A payer might be willing to pay for an expensive gene therapy if they knew that the cost for treating their patient over their lifetime would not be necessary – just the one time therapeutic intervention. The question is, are we ready for a single payer system? Probably not right now. but it may take on new relevance once these therapies are proven and available.

Furthermore, one must consider the short and long term effect that these kinds of cures would have on the current “sick care system”. Medical care, emergency room visits, hospitalizations and medications would no longer be needed. The ongoing costs of care would be eliminated. A whole new paradigm of health care would have to be put in place or the current number of providers would no longer be required. Is this a positive or negative? Depends on whether you are the patient or provider. Hmm! Perhaps more questions than answers.

Hi Ed, I enjoyed your article. It evoked the following thought.
During the early days of data communications much of the equipment cost $10,000 to $15,000 each and corporate customers needed lots of them. Codex Corporation, a division of Motorola, leased the equipment which effectively spread the cost of the network over many months and years. Codex enjoyed the steady revenue stream and our customers could then afford to grow their networks rather than ration them. Perhaps the drug companies should think of long term monthly payments from the patient. It would be like royalties on a patent or a song. Keep on writing. Thanks.
Rob StGermain, Ashland, MA

The therapies cost of production are LESS than conventional treatments, and their research and development funded by PUBLIC MONEY. Big-pharma waits for decades of publicly funded research to yield results and takes it the last few steps to bring it to “market.”

These corporations are insufferable, inhuman criminal organizations and should be nationalized – the summation of their stolen “intellectual property” given back to the people who paid for it.

How about “perm-patents” for pharma and biotech companies developing drugs for curing incurable diseases?

In return for companies developing these drugs, which in the future seemingly will become more numerous, you promise to introduce and maintain their prices “more reasonably” than today, and we grant you unending patents instead of the current 20-year timetable, of which 8-12 years is chewed up in discovery and regulatory review.

Thus, companies will be incentivized to continue research into areas that have few patients, and even into areas like antibiotics, where so many firms have terminated research because of lapsing patents. Medicine wins out because of new innovative therapies, and we no longer “umbrella” generic drug companies which contribute little to the advancement of treatment of diseases except to rip off patents.

Thanks for stopping by. This is an interesting notion and reminds me, in some ways, of the sort of thing I sometimes hear about incentives for drug development more broadly. I think there’s merit in chewing this over.

Back in May 2015, in The Ophthalmologist, I addressed this issue, including some estimates of what gene therapy for retinal eye diseases might cost: What will Gene Therapy & Stem Cell Treatment Cost & How Will We Pay for It? See:http://tinyurl.com/GeneTherapyCosts